WMATA recently announced that it’s looking to have a private concessionaire take over operations and maintenance of all of its parking facilities, including garages and parking meters on its property. In exchange for a big up-front payment equal to 50 years of parking fees, the concessionaire would have to operate and maintain almost 60,000 parking spaces. It’d also get to collect all the parking fees.
Right now, Metro runs its parking lots. WMATA is looking for a company to take over, though. Photo by Dan Reed on Flickr.
For the base proposal, WMATA allows up to a 3% increase in parking rates every year, and expects the estimated payout to be based on similar hours of operation. However, as an alternate proposal, each potential operator can propose changes to rates and hours of operation, which would be subject to board approval.
This idea looks disturbingly similar to a disastrous proposal which locked the city of Chicago into giving away most of the value of their on-street parking for 75 years. In exchange for $1.2 billion up-front, mostly used to close budget gaps and now long gone, Chicago no longer has any control of how on-street parking is priced, and has to pay the concessionaire when people use the streets for festivals, for disabled placard use, and for allowing construction of parking garages.
Why WMATA might want this deal
The benefits to WMATA are fairly obvious: they get out of the business of operating parking garages and lots, similar to how they have contracted out paratransit service. WMATA gets a big up-front payment of what I’d estimate to be about 1 billion dollars depending on the discount rate, the cost of operating and maintaining the parking spaces, and how much profit the private concessionaire prices into its bid.
However, WMATA and the funding jurisdictions would lose almost $50 million in current parking revenues per year, which is approximately half of the annual estimated budget shortfall WMATA has had at the beginning of the typical budget season for the past 12 years. So in addition to the usual $100 million in budget savings, fare increases, and juridictional subsidy increases to close the typical budget gap, WMATA would have to find an additional $50 million a year to make up for the loss in parking revenue.
The deal could limit Metro’s freedom to boost ridership or redevelop stations
But that’s not all. Since WMATA is requesting potential concessionaires to be creative with their bids, they could potentially increase the amount of the up-front payment by offering to charge for parking during nights and weekends.
Currently, WMATA offers parking for free evenings during the week, and all weekend. This helps improve WMATA’s bottom line, because the parking is not scarce, and the people parking typically ride Metrorail and pay substantial off-peak fares (increased over the past decade from about 50% of peak fares to about 75% of peak fares under the guidance of former general manager Richard Sarles).
A savvy concessionaire could offer WMATA a much larger payout by charging for evening and weekend parking. But by discouraging weekend/evening riders, it could be taking revenue away from Metrorail — revenue that WMATA may have been counting on, but which wasn’t on the parking concessionaire’s balance sheet. Without a solid analysis of how much fare revenue could be lost, WMATA risks further damaging the annual budget in exchange for a one-time payout.
Parking here during nights and weekends is currently free, which encourages more people to ride Metro. But a private company could change that. Photo by Elvert Barnes on Flickr.
It’s even worse if WMATA decides in the future that parking isn’t the best use of some land near a station. If office, residential, or retail would be better around a station, or if Metro needs some of the metered spaces for buses or another use, WMATA would either have to pay the concessionaire a large penalty or, depending how the contract is structured, be unable to make the change at all.
Even if a redevelopment replaces parking, would the concessionaire be able to veto designs it didn’t like? Would WMATA have to pay it back for all of the revenue while the garage is being rebuilt, and what would the cost be? WMATA’s request for proposals doesn’t specify, but if a final contract is anything like Chicago’s, this deal could significantly hamstring Metro’s choices in the future.
Do we trust Metro to negotiate well?
All of this aside, for this plan to succeed, we would have to trust WMATA to correctly evaluate the future value of their parking assets so as not to get taken advantage of financially. According to an independent inspector general report, Chicago’s deal could have been worth almost $900 milllion more than the city actually received. In response to a press inquiry, WMATA only stated that “outside resources” would be used to help evaluate bids.
We also have to trust that WMATA will appropriately spend the money it gets up front in a way that is worth giving up all the future revenue from parking we currently count on to pay WMATA’s bills. Without parking revenue to help increase the cost recovery ratio of the system, it is possible that state and local governments will put pressure on fares to make sure more of the operating costs are being covered. Finally, WMATA risks losing the ability to control prices or usage of the parking lots without financial penalties.
This looks like an extremely risky potential deal. WMATA should proceed with caution.